How the US election could change the direction of trade winds for India

The US Presidential election of 2024 is one the most watched political events of recent times especially as the outcome will have a huge impact on international trade.

In the past few decades, many American politicians have talked about attracting manufacturing investment and jobs back to the country after the manufacturing of goods consumed by Americans has spread across the globe and manufacturing jobs have dwindled in the USA. Countries that export substantially to the USA or have been the destination of manufacturing investment in the past three decades are likely to be targets of trade action in the near future. In any case, the countries with whom the USA runs a large trade deficit are on the radar of at least one potential aspirant to the White House. India is one of those countries.

The US happens to be the largest destination for Indian merchandise exports. In 2023-24, imports into India from the USA amounted to $42.2 billion, while exports from India were valued at $77.52 billion.


So what should Indian businesses exporting to or importing from the USA expect by way of trade measures in the near future?

In the past three decades, experts had started seeing Customs duties on import of goods as retrograde measures. The World Trade Organisation (WTO) has worked towards reducing tariff and non-tariff barriers. Continued imposition of tariffs had become the preserve of less developed countries or countries that were on the path to development but were not rich enough. However, with tariffs back on the table from the first term of Donald Trump as President of the USA — and even more so now — it is time for Indian businesses to assess and take mitigation steps for their trade with the USA.

India’s merchandise exports to the USA constitute 18-19% of its total exports and are generally high-margin trade. This is a growing market and one in which market access needs to be preserved.

The top five categories of goods exported to USA are:

Currently, many articles in the above-mentioned categories can be imported free of duty into the USA. Apart from a few outlier rates, others are chargeable up to 5% duty. Products like apparel and other textile articles have duties going up to 32%. On the other hand, duty rates for certain goods like pharmaceutical products are uniformly zero. A thorough analysis of tariff possibilities and potential mitigation strategies would, however, need to go beyond the above list.

There would be differences in the trade conditions if Kamala Harris comes to power and if Donald Trump wins the election. Tariffs are less likely to be a major factor in international trade if Harris wins, though they would still be an option on the table. In the case of a Trump win, tariffs on many items exported from India to the US could become a reality.

In either case, however, certain goods like pharmaceutical products are unlikely to be impacted as tariffs would increase prices in the country of import and no elected government would risk voters’ anger by presiding over price-increase of medicines.

Many categories of products like electronic goods and mechanical machinery could be targeted for tariff imposition by a US government keen to either incentivise domestic manufacturing or raise revenue. The USA’s continued adherence to trade agreements like the Information Technology Agreement (ITA) may also not be guaranteed under a Trump administration.

It is noteworthy that Trump is looking at import tariffs not only as a means to relocate manufacturing back to the USA but also to compensate for the other tax cuts that he plans to institute. Under a Harris administration, the issues would be less severe but would exist in a milder form.

While the Indian government would doubtless pursue proactive trade engagement with the new government in the US, businesses exporting to the USA would also need to be prepared to restructure their supply chains. Trade efficiency and resilience would need to be baked into them. This could entail expanding the footprint of Indian businesses in countries that already have trade agreements with the USA. The Rules of Origin under Trade Agreements offer opportunities of spreading value addition across various jurisdictions while claiming duty benefits. While India does not have a free or preferential trade agreement (FTA/PTA) with the USA and signing an agreement could take ages, expanding part of manufacturing or assembly operations to one of the 20 countries with whom the US has FTAs/PTAs could be a viable option. Some of these countries also have FTAs/PTAs signed with India and may be geographically convenient for Indian industry.

The governments of the two countries and industry bodies will also need to engage with each other on non-tariff and technical barriers to trade. Resolving some of these issues has become more difficult due to the waning influence and power of the WTO.

In sum and substance, with tariffs and other barriers becoming respectable instruments of trade policy, agility and resilience in supply chains backed by sound trade diplomacy would be indispensable for India’s external trade.

The writer is an independent trade expert.